At their meeting yesterday, the FASB voted on two issues related to leveraged leases and their accounting under the proposed new lease guidance.

Lessors that enter into leveraged leases are currently afforded unique accounting under U.S. GAAP. The Board voted that under the new lease guidance there will be no specialized accounting for leveraged leases. That is, accounting for leveraged leases will be the same as that for all other leases, and the associated nonrecourse debt will be presented gross on the balance sheet. In addition, the after-tax yield recognition required for leveraged leases under current U.S. GAAP would be precluded.

The Board also voted that leveraged lease transactions that exist upon the adoption of the proposed lease guidance will not be grandfathered. Therefore, lessors will be required to account for new and existing leveraged lease arrangements under the new standard once it becomes effective.

The FASB staff also recommended in a staff memo that the final standard include transition guidance for leveraged leases. The transition guidance would require a lessor in a leveraged lease to (1) record the lease receivable as it would any other receivable, (2) consider the impact of a third-party residual value guarantee when estimating its residual value, and (3) record the nonrecourse debt at its outstanding principal amount, net of any unamortized debt issuance costs and accrued interest. However, the staff indicated that it would present separate memos at a future meeting to discuss these transition matters.